Passing the Torch – Selling a Business Successfully

Your exit strategy may be to continue with the company for while after the sale, or you may intend to leave promptly. You are attempting to discover a way to fire yourself that makes the most sense for you and selling the business either way.

Often, sellers stay with the business a year or so after the sale, although the length of time is dependant on their objectives and those of the new owners, the intricacy of the business, and the kind of sale and financing. Earn-out scenarios often require longer than one year. Your plan for selling a company and passing on ownership must identify when and how you leave, and it must be settled on by the buyer, in any case.

Passing the Torch

Once you’ve completed your sale, you face passing the torch, maybe the most emotionally difficult task for any business owner. Regrettably, some owners make themselves the center of too many decisions and activities making their business unhealthily dependant on them. This also makes the thought of leaving it a shock for the owner and employees. Overcoming that shock is necessary for the transition of ownership. Surrendering a torch held so long can be difficult, but transition planning helps to make transfer of ownership real and smooth, psychologically and operationally.

Transition planning deals with all aspects of transferring responsibilities. It begins with you, the soon-to-be former owner, deciding what must take place strategically and tactically. You must summarize relationships and responsibilities to be transitioned, especially. Once done, you may recognize that you may need to create a stronger second tier of management.

Dates and Notes

Capture your key actions and dates in the sale contract, and keep notes about what you do, how you do it, and how best to simplify responsibilities for the appropriate successor. Your notes can be priceless in capturing ins and outs of running your company, although this can seem like an administrative bother. One company we know of assigned the CEO an administrative assistant exclusively dedicated to staying by his side to record what he was doing and how he made decisions.

Be sure to incorporate important transition dates into the communication plan. Determine who must know when you are departing and who has taken over responsibilities. Your objective is to meet all contractual commitments within a set time mirroring your goals, the new owner’s goals, and those goals of the business. You want to ensure these changes are known fittingly and the changes occur smoothly for all.

A signed contract in hand, you and the new owner can build on preliminary transition work you completed before. Together, you should blueprint a well-constructed, detailed, and practical timetable. This formal, written timetable should indicate when transfer of ownership is complete, when day-to-day responsibilities shift, and when you leave.

You can begin to think through the impact the change of ownership will have on others as these details are defined. It also should comprise of important metrics — for instance, earn-outs agreed to in the sale contract.

When reviewing metrics such as earn-outs, assure they don’t set you and the new owner at opposite each other. Recently, we were involved in a somewhat common situation in which earn-out metrics became a source of conflict.

The seller’s earn-out was rooted in business growth and profitability; however the buyer, after acquiring the company to incorporate it into a larger one, wanted to install new computer systems. The buyer also sought to charge the former business owner for the systems, devote some of the former business owner’s staff to making them work, and take his people away for training. The seller saw the expense and diversion of staff as a risk to his earn-out, and he began to work against the buyer on it and other initiatives. When selling a company, be sure to have honest conversations up front.

I invite you to use these ideas during your journey to sell a business.